The virtual inductor is widely used in the virtual synchronous generator (VSG) control to attain predominantly inductive impedance and reduce the power coupling. In fact, ‘predominantly inductive impedance’ is a misleading indicator of decoupling performance. In this study, a comprehensive perspective on virtual inductor is given for the improved decoupling performance of VSG control. A small-signal model is proposed to make a thorough inquiry into the effects of virtual inductor on power decoupling. With the proposed model, the optimal value of virtual inductor is obtained, the physical interpretation of the optimal decoupling is revealed, and the necessity of using virtual inductor is discussed. First, with optimisation of the value of virtual inductor, some negative effects of excessively large virtual inductor on power decoupling can be avoided. The excessively large value of virtual inductor will deteriorate the performance of power decoupling, aggravate the reactive power shortage of the grid and increase the capacity demand of voltage-source converter. Additionally, when the grid inductance is larger than the threshold value, virtual inductor is not needed. After that, the external physical characteristics of VSG when the grid inductance is under that critical condition are analysed. Finally, the theoretical analysis is validated by simulation and experiments.